Question

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2018:

Common shares outstanding throughout the year		100	million
Convertible preferred shares (convertible into 20 million shares of common)		60	million
Convertible 10% bonds (convertible into 19.5 million shares of common)	$	2,500	million

Henderson-Niles’s net income for the year ended December 31, 2018, is $900 million. The income tax rate is 40%. Henderson-Niles paid dividends of $2 per share on its preferred stock during 2018.

Required:
Compute basic and diluted earnings per share for the year ended December 31, 2018.

Answer 1

		=	Earnings per share
1	Basic EPS	=	$                  7.80
2	Diluted EPS	=	$                  7.50
	Workings:
	EPS	=	Net Income available to equity shareholders/Weighted average number of outstanding shares
	EPS	=	[$900 million - ($2 X 60 million)] / 100 million
		=	$                  7.80
	Diluted EPS	=	Adjusted Net Income available to equity shareholders/Adjusted Weighted average number of outstanding shares
		=	[$900 million / (100 million + 20 million)]
		=	$                  7.50